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Item 7. Management’s Discussion and Analysis

2021-03-01 compared with 2020-03-27 · 219 added, 234 removed, 279 unchanged (62% of the section changed)

ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and notes to those statements, appearing elsewhere in this report.

This report contains forward-looking statements reflecting our current expectations that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions.

The cautionary statements made in this report should be read as applying to all related forward-looking statements wherever they appear in this report.

Our actual results may differ materially from those indicated in the forward-looking statements due to a number of factors, including those discussed in Item 1A, Risk Factors and elsewhere in this report.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, describes the principal factors affecting the results of our operations, financial condition and changes in financial condition, as well as our critical accounting policies and estimates.

Our MD&A is organized as follows:

● Safe-harbor and Non-GAAP Clarification.

● Non-GAAP Measures.

This section provides appropriate disclosures regarding forward looking statements and our use of Non-GAAP financial measures.

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This section provides a summary of recent accounting pronouncements and discusses their potential impact on our consolidated financial statements.

NON-GAAP CLARIFICATION

Non-GAAP Measures

Although our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP), we believe describing revenue and expenses, excluding the effects of foreign currency, acquisitions and divestitures, as well as certain other charges, net, provides meaningful supplemental information regarding our performance.

Specifically, management believes that organic revenue and free cash flow, both non-GAAP financial measures, as well as non-GAAP gross profit margin and non-GAAP operating margin, provide relevant and useful information that is widely used by equity analysts, investors and competitors in our industry, as well as by our management, in assessing both consolidated and business unit performance.

We rely internally on certain measures that are not calculated according to GAAP.

These measures are organic revenue, free cash flow, non-GAAP gross profit margin and non-GAAP operating margin.

Our management believes that these financial measures provide relevant and useful information that is widely used by equity analysts, investors and competitors in our industry, as well as by our management, in assessing both consolidated and business unit performance.

We define the term organic revenue as GAAP revenue excluding the effect of foreign currency translation changes and the effect of acquisitions and divestitures.

We define the term non-GAAP gross profit margin as GAAP gross profit margin with certain non-GAAP measures excluded and non-GAAP operating margin as GAAP operating margin with certain non-GAAP measures excluded.

These non-GAAP measures exclude costs related to restructuring actions, acquisition and related integration expenses, amortization of acquired intangible assets, costs associated with our global information technology transition initiative, and other non-operational costs that are infrequent or non-recurring in nature and we believe these are useful measures to evaluate our continuing business.

These non-GAAP measures exclude costs related to restructuring actions, acquisition and related integration expenses, amortization of

acquired intangible assets, costs associated with our global information technology transition initiative, and other non-operational costs and we believe these are useful measures to evaluate our continuing business.

We define free cash flow as net cash provided by operating activities less additions to property, plant, and equipment.

We believe free cash flow is a useful measure to evaluate our business as it indicates the amount of cash generated after additions to property, plant, and equipment which is available for, among other things, investments in our business, acquisitions, share repurchases, dividends and repayment of debt.

We use these non-GAAP financial measures to evaluate our period-over-period operating performance because our management believes they provide more comparable measures of our continuing business because they adjust for

certain items that are not reflective of the underlying performance of our business.

These measures may also be useful to investors in evaluating the underlying operating performance of our business.

We regularly use these non-GAAP financial measures internally to understand, manage, and evaluate our business results and make operating decisions.

We also measure our employees and compensate them, in part, based on such non-GAAP measures and use this information for our planning and forecasting activities.

These measures may also be useful to investors in evaluating the underlying operating performance of our business.

The presentation of these non-GAAP financial measures is not intended to be a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP and may be different from non-GAAP financial measures used by other companies, and therefore, may not be comparable among companies.

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Our corporate headquarters are located in Billerica, Massachusetts.

We maintain major technical and manufacturing centers in Europe and North America, and we have sales offices located throughout the world.

We maintain major technical and manufacturing centers in Europe, Asia and North America, we have sales offices located throughout the world.

Bruker is organized into three reportable segments:

the BSI Life Science Segment (comprised of the Bruker BioSpin Group and the Bruker CALID Group), the BSI NANO Segment and the Bruker Energy & Supercon Technologies (BEST) Segment.

For the year ended December 31, 2019, our revenue increased by $177.0 million, or 9.3%, to $2,072.6 million, compared to $1,895.6 million for the year ended December 31, 2018.

Included in revenue were increases of approximately $118.4 million attributable to our recent acquisitions and a decrease of approximately $50.3 million from the impact of foreign currency translation in the year ended December 31, 2019 compared to the year ended December 31, 2018.

Excluding the effects of foreign currency translation and our recent acquisitions, our organic revenue, a non-GAAP measure, increased by $108.9 million, or 5.7%.

Our gross profit margin increased to 48.0% for the year ended December 31, 2019 as compared to 47.5% during the year ended December 31, 2018.

The increase in gross profit margin resulted primarily from operational improvements within our BSI Life Science Segment, accretive acquisitions and favorable foreign currency translation effects.

Our operating margin increased to 14.5% for the year ended December 31, 2019 from 13.8% during the year ended December 31, 2018.

Our operating margin increased in the year ended December 31, 2019 due primarily to volume and operational improvements within our BSI Life Science Segment, accretive acquisitions and the positive impact of foreign currency translation, partially offset by continued investments in our strategic growth areas.

Revenue for the year ended December 31, 2020 decreased by $85.1 million, or 4.1%, to $1,987.5 million, compared to $2,072.6 million for the comparable period in 2019.

The decline in revenue was primarily related to the impact of the COVID-19 pandemic and the related economic slowdown.

Included in revenue were increases of approximately $29.4 million in favorable impact of foreign currency translation and $10.5 million attributable to our recent acquisitions in the year ended December 31, 2020 compared to the year ended December 31, 2019.

Excluding the effects of foreign currency translation and recent acquisitions, our organic revenue, a non-GAAP measure, decreased by $125.0 million, or 6.0%.

Our gross profit margin decreased to 47.3% for the year ended December 31, 2020 as compared to 48.0% during the year ended December 31, 2019.

The decrease in gross margin was a result of lower volume and reduced productivity due to disruptions from the COVID-19 pandemic and the related economic slowdown, partially offset by certain cost reduction measures.

Our operating margin decreased to 12.5% for the year ended December 31, 2020 from 14.5% during the year ended December 31, 2019.

The decrease in operating margin was due to lower revenue and gross profit during the COVID-19 pandemic and related economic slowdown, partially offset by cost control and cost reduction measures.

The income tax provision in the years ended December 31, 2020 and December 31, 2019 was $64.4 million and $82.4 million, respectively, representing effective tax rates of 28.5% and 29.4%, respectively.

The increase in our effective tax rate for the year ended December 31, 2019, compared to 2018, was primarily attributable to a benefit recorded in 2018 associated with the reversal of state and foreign withholding taxes on unremitted earnings that did not recur in 2019 and additional tax reserves for uncertain tax positions in Europe in 2019.

Our tax rate may change over time as the amount and mix of jurisdictional income changes.

Earnings per share increased to $1.26 per diluted share for the year ended December 31, 2019 compared to $1.14 per diluted share for the year ended December 31, 2018.

The increase compared to the prior year was driven primarily by revenue growth, higher gross and operating profit offset by an increase in the effective tax rate for the year ended December 31, 2019.

Operating cash flow for the year ended December 31, 2019 was a source of cash of $213.4 million.

For the year ended December 31, 2019, our free cash flow, a non-GAAP measure, was $140.4 million, calculated as follows:

The decrease in our effective tax rate for the year ended December 31, 2020, compared to 2019, was primarily attributable to the change in jurisdictional income mix and decrease in foreign income inclusions due to electing the high tax exemption relating to Global Intangible Low-Taxed Income (“GILTI”), partially offset by an increase in the effective tax rate due to change in valuation allowance.

Our tax rate may change over time as the amount and mix of jurisdictional income mix changes.

Earnings per share decreased to $1.02 per diluted share for the year ended December 31, 2020 from $1.26 per diluted share for the year ended December 31, 2019.

The decrease compared to the prior year was driven primarily by lower revenues during the COVID-19 pandemic and related economic slowdown, partially offset by our cost control and cost reduction measures.

The following table presents a reconciliation from net cash provided by operating activities, which is the most directly comparable GAAP operating financial measure, to free cash flow as used by management (in millions):

Year Ended December 31,

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Free Cash Flow

For the year ended December 31, 2019, our free cash flow was 26% lower than for the year ended December 31, 2018 primarily attributable to higher net earnings adjusted for non-cash items were more than offset by an increase in capital expenditures and the timing of inventory purchases.

On December 11, 2019, we entered into (1) a new revolving credit agreement to establish a new revolving credit facility in the aggregate principal amount of $600 million;

(2) a term loan agreement to establish a new term loan facility in the aggregate principal amount of $300 million;

and (3) a note purchase agreement to issue and sell CHF 297 million aggregate principal amount of 1.01% senior notes due December 11, 2029.

Floating interest rates under the term loan were simultaneously fixed through cross-currency and interest rate swap agreements into Euro ($150 million) and Swiss Franc ($150 million) rates carrying average effective interest rates of 0.94% and hedge our net investment in our Euro and Swiss Franc denominated net assets.

The new revolving credit agreement replaced our $500 million five-year revolving credit agreement established on October 27, 2015, that was terminated on December 11, 2019.

In addition, we designated our CHF 297 million senior notes as a hedge in our net investment in our Swiss Franc denominated net assets.

Proceeds from this financing were used to repay the outstanding borrowings under our prior 2015 revolving credit facility and we intend to use the remaining proceeds for general corporate purposes and to support corporate strategic objectives.

During December 2019, we entered into U.S.

Dollar to Euro cross-currency swaps on our existing 2012 private placement notes of $105 million 4.31% Series 2012A Senior Notes, Tranche C, due January 18, 2022, and the existing $100 million 4.46% Series 2012A Senior Notes, Tranche D, due January 18, 2024, resulting in an average effective interest rate of 2.25% on these instruments.

The cross-currency swaps hedge our net investment in our Euro denominated net assets.

As a result of entering into these interest rate and cross currency swap agreements, we reduced our interest expense by $0.6 million during the year ended December 31, 2019.

We anticipate these swap agreements will lower net interest expense in future years.

On February 22, 2016, we announced the establishment of a dividend policy and the declaration by our Board of Directors of an initial quarterly cash dividend in the amount of $0.04 per share of our issued and outstanding common stock.

Dividends amounting to $25.0 million and $25.1 million were paid during the years ended December 31, 2019 and 2018, respectively.

Future dividend payments, if any, are subject to approval of our Board of Directors.

We are targeting a cash dividend to our shareholders in the amount of $0.16 per share per annum, payable in equal quarterly installments.

In the years ended December 31, 2019 and 2018, we completed various acquisitions that complemented our existing market offerings and added aftermarket and software capabilities.

The impact of the acquired companies on revenues, net income and total assets was not material.

For the year ended December 31, 2020, our free cash flow was 67% higher than the same period in 2019, primarily from an increase in customer advances and cash from receivables despite a decline in net income.

The following table presents a reconciliation from gross profit, which is the most directly comparable GAAP operating performance measure, to non-GAAP gross profit margin as used by management (in millions):

Year Ended December 31,

Restructuring costs

Acquisition-related costs

Purchased intangible amortization

Non-GAAP gross profit margin

Our non-GAAP gross profit margin was 48.7%, 50.0% and 49.0% in the years ended December 31, 2020, 2019 and 2018, respectively.

Our non-GAAP gross profit margin decreased in 2020, as compared to 2019 due to lower volume and reduced productivity, due to COVID-19 and the economic slowdown.

Our non-GAAP gross profit margin increased in the year ended December 31, 2019, as compared to the same period in 2018, primarily due to operational improvements within our BSI Life Science Segment, accretive acquisitions and favorable foreign currency translation effects.

The following table presents a reconciliation from operating income, which is the most directly comparable GAAP operating performance measure, to non-GAAP operating income as used by management (in millions):

Year Ended December 31,

Operating income

Restructuring costs

Acquisition-related costs

Purchased intangible amortization

Non-GAAP operating margin

Our non-GAAP operating margin was 16.0%, 17.6% and 16.8% in the years ended December 31, 2020, 2019 and 2018, respectively.

Our non-GAAP operating margin decreased in 2020, as compared to 2019 on lower revenues, partially offset by cost control and cost reduction measures.

We can experience quarter-to-quarter fluctuations in our operating results as a result of various factors, some of which are outside our control, such as:

● the impact of the COVID-19 global pandemic on our customers, supply chain or manufacturing capabilities;

● the timing of governmental stimulus programs and academic research budgets;

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● the time it takes for us to receive critical materials to manufacture our products;

● general economic conditions;

● general economic conditions, including the impact of COVID-19 on the global economy;

● the time it takes to satisfy local customs requirements and other export/import requirements;

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● the time required to obtain governmental licenses.

These factors have in the past affected the amount and timing of revenue recognized on sales of our products and receipt of related payments and will continue to do so in the future.

Several of these factors have in the past affected the amount and timing of revenue recognized on sales of our products and receipt of related payments and will continue to do so in the future.

Accordingly, our operating results in any particular quarter may not necessarily be an indication of any future quarter’s operating performance.

As previously disclosed in our Current Report on Form 8-K filed on February 18, 2020, the Audit Committee of the Board of Directors (Audit Committee) initiated an internal investigation into an allegation recently received in connection with our year-end close, primarily relating to income tax matters including the effective income tax rate for 2019 and the related income tax balance sheet accounts.

The Audit Committee, with the assistance of independent, experienced external legal counsel, and independent forensic accountants, concluded its investigation in March 2020.

The Investigation did not identify any material misstatements or omissions regarding our financial statements, misconduct, violations of our Code of Conduct, or tone at the top failures.

The COVID-19 pandemic continues to present a challenging operating environment and we remain focused on four key priorities:

the health and safety of our employees, customers and partners;

maintaining business continuity and service levels for our customers;

executing prudent temporary cost reductions;

and delivering enabling research and diagnostic products to help fight the pandemic, and to support other essential priorities of our society.

Health and safety of our valued employees, customers and partners

While Bruker's businesses are essential, we have implemented strict social distancing, enhanced cleaning protocols and other preventative measures, such as temperature scanners and company-issued face coverings, in our major facilities.

While many of our office colleagues are working remotely, we are placing enhanced focus on our service organization and factory employees for whom work from home is not feasible.

Where customer sites are accessible and open, our field service organizations operate under social distancing protocols to ensure the safety of customer sites, when our employees need to be on site.

Maintaining business continuity and service levels for our customers

Ensuring our ability to supply our enabling technologies and solutions and maintaining high service levels for our customers is another top priority for Bruker.

In late March and during parts of April 2020, several of our manufacturing sites underwent temporary controlled shutdowns or were operating at reduced capacity to implement new safety protocols, comply with local rules, and manage cost and inventory levels.

These sites thereafter ramped back up with expanding capacity and productivity levels.

However, with any resurgence of the virus or the emergency of additional strains of the virus, we may need to consider further temporary controlled shutdowns or reduced capacity measures.

In addition, we are continuing capital investments in production facilities for efficiencies and expansion and our supply chain remains resilient.

We carry higher inventory levels to address supply chain risks related to the pandemic and do not currently anticipate being supply or capacity limited in the first quarter of 2021.

Executing prudent temporary cost reductions

In an effort to mitigate the negative impacts on our business of COVID-19, and the slowdown in the global economy, we implemented temporary cost control and cost reduction measures.

These temporary measures included short-time work for many of our European operations, temporary tiered salary reductions for our board of directors, global leadership team and workforce, one-to two-week closures of select manufacturing locations, selective product manufacturing reductions, a hiring freeze, and curtailment of non-strategic discretionary spending.

At the same time, we looked to minimize the disruption for our employees and preserve our ability to ramp up again with our highly trained and loyal work force.

While pursuing cost savings throughout the business, we have maintained our important investments in key strategic initiatives.

Many of the cost reduction measures have now been relaxed and our revenue is experiencing a recovery.

Delivering enabling research and diagnostic products to help fight the pandemic and to support other essential priorities of our society

Bruker is providing critical technologies and solutions to help combat the COVID-19 crisis, most notably our Microbiology and infectious disease diagnostics portfolio, to which we have added SARS-COV-2 PCR tests, and our nuclear magnetic resonance and mass spectrometry systems which are used in critical disease, therapeutic and vaccine research.

The COVID-19 global pandemic has driven volatility and uncertainty in global markets and has affected our operations significantly.

We continue to work to manage the impact of COVID-19 on our operations;

however, the full extent to which any resurgence of the virus or the emergence of any new strains of the virus will impact our business, directly or indirectly, cannot accurately be predicted at this time.

In 2020, the COVID-19 pandemic affected productivity at our manufacturing facilities and caused disruptions and delays in certain of our shipments to customers who closed facilities during the pandemic.

We continue to monitor the impact of COVID-19 on our business and respond accordingly.

For additional information on the various risks posed by the COVID-19 pandemic, refer to Item 1A.

Risk Factors included in this report.

RESULTS OF OPERATIONS

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Consolidated Results

The following table presents our results for the years ended December 31, 2019 and 2018 (dollars in millions, except per share data):

The following table presents our results for the years ended December 31, 2020 and 2019 (in millions, except per share data):

Dollar Change

Product revenue

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Weighted average common shares outstanding:

For the year ended December 31, 2019, our revenue increased by $177.0 million, or 9.3%, to $2,072.6 million, compared to $1,895.6 million for the year ended December 31, 2018.

Our revenues included $118.4 million attributable to our recent acquisitions and a decrease of approximately $50.3 million from the impact of foreign currency translation in the year ended December 31, 2019 compared to the year ended December 31, 2018.

Excluding the effects of foreign currency translation and our recent acquisitions, our organic revenue, a non-GAAP measure, increased by $108.9 million, or 5.7%.

Our gross profit for the year ended December 31, 2019 was $995.3 million, resulting in a gross profit margin of 48.0%, compared to $900.0 million, resulting in a gross profit margin of 47.5%, for the year ended December 31, 2018.

Included in gross profit were various charges for amortization of acquisition-related intangible assets and other acquisition-related costs and restructuring costs totaling $41.7 million and $28.7 million for the years ended December 31, 2019 and 2018, respectively.

Excluding these charges, our non-GAAP gross profit margin was 50.0% and 49.0% in the years ended December 31, 2019 and 2018, respectively.

Our GAAP and non-GAAP gross profit margin increased in the year ended December 31, 2019 primarily due to operational improvements within our BSI Life Science Segment, accretive acquisitions and favorable foreign currency translation effects.

The decline in revenue was primarily related to the impact of the COVID-19 pandemic on our customers as well as certain of our operations and lower global instrumentation and superconductor demand due to the pandemic and related economic slowdown.

The decline in gross profit was a result of lower revenue volume and reduced productivity, given the impact of the pandemic and economic slowdown, partially offset by cost control and cost reduction measures.

Selling, General and Administrative

Our selling, general and administrative expenses for the year ended December 31, 2019 increased to $500.2 million, or 24.1% of revenue, from $444.7 million, or 23.5% of revenue, for the year ended December 31, 2018.

The increase was primarily caused by the addition of recent acquisitions and select investments in strategic growth areas, partially offset by favorable foreign currency translation effects.

Our selling, general and administrative expenses in year ended December 31, 2020 decreased to 23.6% of total revenue from 24.1% of total revenue for the comparable period in 2019.

The decrease as a percentage of total revenue, and in dollars, was a result of the cost control and cost reduction measures implemented during the COVID-19 pandemic in 2020.

Research and Development

Our research and development expenses for the year ended December 31, 2019 increased to $187.7 million, or 9.1% of revenue, from $173.4 million, or 9.1% of revenue, for the year ended December 31, 2018.

The dollar increase was driven primarily by the addition of recent acquisitions, partially offset by favorable foreign currency translation effects.

Our research and development expenses for the year ended December 31, 2020 increased to 10.0% of total revenue from 9.1% of total revenue for the comparable period in 2019.

The increase as a percentage of revenue, and in dollars, was a result of higher research and development spending, as we continued to fund certain growth investments, in comparison to lower revenue in 2020.

Other Charges, Net

Other charges, net was $24.9 million for the year ended December 31, 2020.

The charges consisted primarily of $12.0 million of restructuring costs related to closing facilities and implementing outsourcing and other restructuring initiatives, $5.9 million related to professional fees, $2.5 million of costs associated with our global IT transformation initiative, $2.4 million of acquisition-related charges related to acquisitions completed in 2020 and 2019 and $2.1 million related to long-lived asset impairments.

Other charges, net was $6.5 million for the year ended December 31, 2019.

The charges consisted primarily of $(3.9) million of restructuring costs related to closing facilities and implementing outsourcing and other restructuring initiatives, $4.6 million of acquisition-related charges related to acquisitions completed in 2019 and 2018, $3.7 million of costs associated with our global IT transformation initiative, and $2.1 million related to professional fees.

The restructuring charges included a gain on the sale of a building of $7.7 million.

Other charges, net was $19.5 million for the year ended December 31, 2018.

The charges consisted primarily of $6.8 million of restructuring costs related to closing facilities and implementing outsourcing and other restructuring initiatives, $3.4 million of acquisition-related charges related to acquisitions completed in 2018 and 2017, $4.8 million of costs associated with our global information technology (IT) transformation initiative and $4.5 million related to professional fees.

In 2020, we expect to incur $10.0 to $15.0 million of expense related to various outsourcing initiatives and other restructuring activities that were implemented in 2019 or will commence in 2020.

At December 31, 2019 and 2018, we performed our annual goodwill and indefinite-lived intangible impairment evaluation and concluded the fair values of each of our reporting units were significantly greater than their carrying amounts, and therefore, no additional impairment is required.

We will continue to monitor goodwill and long-lived intangible assets, as well as long-lived tangible assets, for possible future impairment.

Operating Income

Operating income for the year ended December 31, 2019 was $300.9 million, resulting in an operating margin of 14.5%, compared to operating income of $262.4 million, resulting in an operating margin of 13.8%, for the year ended December 31, 2018.

Included in operating income were various charges for amortization of acquisition-related intangible assets and other acquisition-related costs and restructuring costs totaling $63.1 million and $55.5 million for the years ended December 31, 2019 and 2018, respectively.

Excluding these charges, our non-GAAP operating margin was were 17.6% and 16.8% in the years ended December 31, 2019 and 2018, respectively.

The increase in GAAP and non-GAAP operating margin was due primarily to volume and operational improvements within our BSI Life Science Segment, accretive acquisitions and the positive impact of foreign currency translation.

The decrease in operating income was due to lower revenue and gross profit during the COVID-19 pandemic and related economic slowdown, partially offset by cost control and cost reduction measures.

Interest and Other Income (Expense), Net

Interest and other income (expense), net during the year ended December 31, 2019 was ($20.5) million, compared to ($17.7) million for the year ended December 31, 2018.

The increase in net interest expense in 2019 was primarily attributable to higher outstanding debt balances in 2019 compared to 2018 being marginally offset by interest income from the new 2019 U.S.

Dollar-to-Euro and U.S.

Dollar to Swiss Franc interest rate cross-currency swap agreements.

During the year ended December 31, 2019, the major components within interest and other income (expense), net were net interest expense of $14.7 million, realized and unrealized losses on foreign currency denominated transactions of $3.3 million, and $2.5 million related to pension plan expenses.

During the year ended December 31, 2018, the major components within interest and other income (expense), net were net interest expense of $11.4 million, realized and unrealized losses on foreign currency denominated transactions of $3.0 million, and $3.9 million related to pension plan expenses.

The primary components within interest and other income (expense), net for the year ended December 31, 2020 were net interest expense of $11.2 million, realized and unrealized losses on foreign currency denominated transactions of $8.0 million and $3.3 million related to pension plan.

During the year ended December 31, 2019, the primary components were net interest expense of $14.7 million, realized and unrealized losses on foreign currency denominated transactions of $3.4 million, $2.5 million related to pension plan expenses and $0.1 million related to other income.

Income Tax Provision

The income tax provision in the years ended December 31, 2019 and 2018 was $82.4 million and $63.7 million, respectively, representing effective tax rates of 29.4% and 26.0%, respectively.

The effective tax rates for years ended 2020 and 2019 were 28.5% and 29.4%, respectively.

The decrease in our effective tax rate for the year ended December 31, 2020, compared to 2019, was primarily attributable to the change in jurisdictional income mix and decrease in foreign income inclusions due to electing the high tax exemption relating to GILTI, partially offset by an increase in the effective tax rate due to change in valuation allowance.

Our tax rate may change over time as the amount and mix of jurisdictional income changes.

Net Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interest

Net income attributable to noncontrolling interests and redeemable noncontrolling interest for the year ended December 31, 2019 was $0.8 million compared to $1.3 million for the year ended December 31, 2018.

The net income attributable to noncontrolling interests and redeemable noncontrolling interest represented the minority shareholders’ proportionate share of the net income recorded by our majority-owned indirect subsidiaries.

The net income attributable to noncontrolling interests represented the minority shareholders' proportionate share of the net income recorded by our majority-owned subsidiaries.

In January 2020, we acquired the remaining interest in our redeemable noncontrolling interest.

Net Income Attributable to Bruker Corporation

Our net income attributable to Bruker Corporation for the year ended December 31, 2019 was $197.2 million, or $1.26 per diluted share, compared to net income of $179.7 million, or $1.14 per diluted share, for 2018.

The increase compared to the prior year was driven primarily by revenue growth, higher gross and operating profit offset by an increase in the effective tax rate for the year ended December 31, 2019.

The decrease in net income and earnings per diluted share was primarily driven by the decline in revenue, gross profit and operating profit as a result of reduced demand during the COVID-19 pandemic and the related economic slowdown.

Segment Results

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This aggregation reflects the similar economic characteristics, production processes, customer services provided, types and classes of customers, methods of distribution and regulatory environments.

BSI Life Science Segment revenue increased by $106.0 million to $1,244.9 million for the year ended December 31, 2019, compared to $1,138.9 million for the year ended December 31, 2018.

The Bruker BioSpin Group revenue increase was primarily due to growth in the system revenue, which included the revenue recognition of three GHz class systems, as well as aftermarket revenue and a small contribution from recent software acquisitions.

The increase in Bruker CALID Group revenue was a result of continued strong demand for life science mass spectrometry and microbiology products, growth in molecular spectroscopy FT-IR and NIR products and contributions from an acquisition.

BSI NANO Segment revenue increased by $64.6 million to $632.7 million for the year ended December 31, 2019, compared to $568.1 million for the year ended December 31, 2018.

The revenue increase was primarily the result of acquisitions as well as continued demand for advanced X-Ray and nano analysis products, partially offset by a sharp decline in demand for semiconductor metrology products and unfavorable foreign currency translation.

BEST Segment revenue increased by $15.1 million to $209.9 million for the year ended December 31, 2019, compared to $194.8 million for the year ended December 31, 2018.

The increase in revenue resulted primarily from shipments of superconductors for healthcare applications offset in part by the impact of unfavorable foreign currency translation.

BSI Life Science Segment revenue was approximately flat year over year from a decline in BioSpin systems and FTIR/NIR molecular spectroscopy revenues, due to the COVID-19 pandemic, which was offset by strong demand for our CALID microbiology and infectious disease diagnostics offering and for certain of CALID’s mass spectrometry systems.

The decline in revenues for the BSI NANO Segment was due primarily to the impact of the COVID-19 pandemic and the related economic slowdown with reduced academic, industrial and industrial research demand.

The decline in revenue for the BEST Segment was due to lower superconductor demand during 2020.

Operating Income

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(a) Represents corporate costs and eliminations not allocated to the reportable segments.

The operating margin expansion for BSI Life Science and BEST was primarily due to positive operating leverage on higher sales mix and operational improvements as well as favorable foreign currency translation for the BSI Life Science Segment.

The decline in operating margin for BSI NANO Segment was due to a decline in semiconductor metrology demand, softness in industrial research markets in the second half of 2019 and the impact of costs related to a recent acquisition.

The operating margin decline in the BSI Life Science segment was due to higher operating expenses in 2020 as compared to 2019.

The decline in operating margin for the BSI NANO segment was due to lower revenue and gross profit, partially offset by cost reduction measures.

The decline in the operating margin for the BEST

segment was due to lower revenue, unfavorable mix and charges related to planned restructuring actions, partially offset by reduced operating expenses.

Year Ended December 31, 2019 Compared to the Year Ended December 31, 2018

Consolidated Results

The following table presents our results for the years ended December 31, 2018 and 2017 (dollars in millions, except per share data):

The following table presents our results for the years ended December 31, 2019 and 2018 (in millions, except per share data):

Dollar Change

Product revenue

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Weighted average common shares outstanding:

For the year ended December 31, 2018, our revenue increased by $129.7 million, or 7.3%, to $1,895.6 million, compared to $1,765.9 million for the year ended December 31, 2017.

Included in revenue were an increase of approximately $28.2 million attributable to our recent acquisitions and an increase of approximately $25.5 million from the impact of foreign currency translation caused by the weakening of the U.S.

Dollar versus

the Euro and other currencies.

The increase in revenue in the year ended December 31, 2019 compared to the year ended December 31, 2018 included $118.4 million attributable to our recent acquisitions and a decrease of approximately $50.3 million from the impact of foreign currency translation.

Excluding the effects of foreign currency translation and our recent acquisitions, our organic revenue, a non-GAAP measure, increased by $108.9 million, or 5.7%.

Our gross profit for the year ended December 31, 2018 was $900.0 million, resulting in a gross profit margin of 47.5%, compared to $816.0 million, resulting in a gross profit margin of 46.2%, for the year ended December 31, 2017.

Our gross profit margin was 48.0% for the year ended December 31, 2019, compared to 47.5% for the year ended December 31, 2018.

Excluding these charges, our non-GAAP gross profit margins were 49.0% and 48.3% in the years ended December 31, 2018 and 2017, respectively.

Our GAAP and non-GAAP gross profit margin increased in the year ended December 31, 2018 due to positive operating leverage on higher sales volume and favorable product mix, partially offset by unfavorable foreign currency translation effects.

Our gross profit margin increased in the year ended December 31, 2019 primarily due to operational improvements within our BSI Life Science Segment, accretive acquisitions and favorable foreign currency translation effects.

Selling, General and Administrative

Our selling, general and administrative expenses for the year ended December 31, 2018 increased to $444.7 million, or 23.5% of revenue, from $415.2 million, or 23.5% of revenue, for the year ended December 31, 2017.

The increase was primarily caused by the effect of recent acquisitions.

Our selling, general and administrative expense was 24.1% and 23.5% of revenue in 2019 and 2018, respectively.

The increase was primarily caused by the addition of recent acquisitions and select investments in strategic growth areas, partially offset by favorable foreign currency translation effects.

Research and Development

Our research and development expenses for the year ended December 31, 2018 increased to $173.4 million, or 9.1% of revenue, from $161.6 million, or 9.2% of revenue, for the year ended December 31, 2017.

The increase was primarily caused by the effect of recent acquisitions.

Our research and development expense was 9.1% of revenue in 2019 and 2018.

The dollar increase in research and development was driven primarily by the addition of recent acquisitions, partially offset by favorable foreign currency translation effects.

Other Charges, Net

Other charges, net was $19.5 million for the year ended December 31, 2018.

Other charges, net was $19.7 million for the year ended December 31, 2017.

The charges consisted primarily of $10.6 million of restructuring costs related to closing facilities and implementing outsourcing and other restructuring initiatives, $4.5 million related primarily to additional contingent consideration recognized for the acquisition of Jordan Valley Semiconductors, Ltd.

(Jordan Valley) based upon an increase in revenue levels of the acquired business which increased the amount of expected earn out payments, $4.2 million of costs associated with our global IT transformation initiative and impairment charges of $0.2 million comprised of other long-lived assets related to the restructuring actions.

Other charges, net for 2019 consisted primarily of a net gain of $3.9 million of restructuring costs related to closing facilities and implementing outsourcing and other restructuring initiatives, $4.6 million of acquisition-related charges related to acquisitions completed in 2019 and 2018, $3.7 million of costs associated with our global IT transformation initiative, and $2.1 million related to professional fees.

The restructuring charges included a gain on the sale of a building of $7.7 million.

Other charges, net in 2018 consisted primarily of $6.8 million of restructuring costs related to closing facilities and implementing outsourcing and other restructuring initiatives, $3.4 million of acquisition-related charges related to acquisitions completed in 2018 and 2017, $4.8 million of costs associated with our global information technology (IT) transformation initiative and $4.5 million related to professional fees.

Operating Income

Operating income for the year ended December 31, 2018 was $262.4 million, resulting in an operating margin of 13.8%, compared to income from operations of $219.5 million, resulting in an operating margin of 12.4%, for the year ended December 31, 2017.

The operating margin expansion was primarily due to increased revenue, favorable product mix, as well as ongoing operational improvements.

This was partially offset by negative foreign currency translation effects, which occurred primarily in the first half of the year.

Operating margin increased to 14.5% in 2019, as compared to 13.8% for the year ended December 31, 2018.

Excluding these charges, our non-GAAP operating margin was 16.8% and 15.9% in the years ended December 31, 2018 and 2017, respectively.

Our GAAP and non-GAAP

operating margin increased in the year ended December 31, 2018 despite significant unfavorable foreign currency translation effects.

The increase in GAAP operating margin was due primarily to volume and operational improvements within our BSI Life Science Segment, accretive acquisitions and the positive impact of foreign currency translation.

Interest and Other Income (Expense), Net

Interest and other income (expense), net during the year ended December 31, 2018 was ($17.7) million, compared to ($21.7) million for the year ended December 31, 2017.

The increase in net interest expense in 2019, as compared to 2018, was primarily attributable to higher outstanding debt balances in 2019 compared to 2018 being marginally offset by interest income from the new 2019 U.S.

Dollar-to-Euro and U.S.

Dollar to Swiss Franc interest rate cross-currency swap agreements.

During the year ended December 31, 2017, the major components within interest and other income (expense), net were net interest expense of $14.6 million, realized and unrealized losses on foreign currency denominated transactions of $5.5 million and $4.8 million related to pension plan expenses, partially offset by $2.1 million of proceeds from a cargo insurance settlement and a gain on acquisition of $0.6 million.

The 2017 interest and other income (expense), net amounts have been revised to reflect the adoption of ASU 2017-07 related to the reclassification of certain pension costs.

Income Tax Provision

The income tax provision in the years ended December 31, 2018 and 2017 was $63.7 million and $117.5 million, respectively, representing effective tax rates of 26.0% and 59.4%, respectively.

The decrease in our effective tax rate for the year ended December 31, 2018, compared to 2017, was primarily attributable to the absence of U.S.

tax reform related charges in 2017.

Our tax rate may change over time as the amount and mix of jurisdictional income changes.

The effective tax rate was 29.4% and 26.0% for the years ended December 31, 2019 and 2018, respectively.

Net Income Attributable to Noncontrolling Interests and Redeemable Noncontrolling Interest

Net income attributable to noncontrolling interests and redeemable noncontrolling interest for the year ended December 31, 2018 was $1.3 million compared to $1.7 million for the year ended December 31, 2017.

Net income attributable to noncontrolling interests and redeemable noncontrolling interest decreased in 2019 as a result of the minority shareholders’ proportionate share of the net income recorded by our majority-owned indirect subsidiaries, as compared to 2018.

Net Income Attributable to Bruker Corporation

Our net income attributable to Bruker Corporation for the year ended December 31, 2018 was $179.7 million, or $1.14 per diluted share, compared to net income of $78.6 million, or $0.49 per diluted share, for 2017.

The increase for the year ended December 31, 2018 was primarily driven by higher revenues, operational improvements and the absence of U.S.

tax reform related charges that were incurred in 2017, as noted above.

For the year ended December 31, 2019 our diluted earnings per share was $1.26, compared to $1.14 per diluted share for 2018.

The increase in net income attributable to Bruker Corporation in 2019, as compared to the prior year, was driven primarily by revenue growth, higher gross and operating profit offset by an increase in the effective tax rate for the year ended December 31, 2019.

Segment Results

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(a) Represents product and service revenue between reportable segments.

The BSI Life Science Segment revenue increased by $68.0 million to $1,138.9 million for the year ended December 31, 2018, compared to $1,070.9 million for the year ended December 31, 2017.

The Bruker BioSpin Group revenue increase was primarily attributable to the strong performance in biopharma, clinical research, applied and aftermarket businesses.

The Bruker CALID Group revenue increase was primarily the result of strong performance in the microbiology, life science mass spectrometry and FTIR/NIR molecular spectroscopy businesses, together with contributions from our recent microbiology and diagnostics acquisitions.

The strong performance in our mass spectrometry and molecular spectroscopy businesses was offset in part by a decline in revenue for CBRNE products.

The BSI NANO Segment revenue increased by $55.1 million to $568.1 million for the year ended December 31, 2018, compared to $513.0 million for the year ended December 31, 2017.

The revenue increase was primarily driven by solid performance in academic and industrial materials research markets for our X-Ray, nano surfaces and nano analysis tools, partially offset by lower revenue from semiconductor metrology markets.

The BSI NANO Segment also benefited from contributions from recent acquisitions, mainly Anasys Instruments and JPK Instruments

BEST Segment revenue increased by $3.6 million to $194.8 million for the year ended December 31, 2018, compared to $191.2 million for the year ended December 31, 2017.

The modest increase in revenue in the year ended December 31, 2018 over the prior year was due to a $5.0 million favorable foreign currency translation effect caused by the fluctuation of the U.S.

Dollar versus the Euro.

BSI Life Science Segment revenue increased by $106.0 million to $1,244.9 million for the year ended December 31, 2019, compared to $1,138.9 million for the year ended December 31, 2018.

BSI NANO Segment revenue increase was primarily the result of acquisitions as well as continued demand for advanced X-Ray and nano analysis products, partially offset by a sharp decline in demand for semiconductor metrology products and unfavorable foreign currency translation.

BEST Segment revenue increase was primarily from shipments of superconductors for healthcare applications offset in part by the impact of unfavorable foreign currency translation.

Operating Income

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(a) Represents corporate costs and eliminations not allocated to the reportable segments.

Our operating margin increased primarily because of the gross profit and operational improvements noted above.

The decline in operating margin for the BSI NANO Segment was due to a decline in semiconductor metrology demand, softness in industrial research markets in the second half of 2019 and the impact of costs related to a recent acquisition.

LIQUIDITY AND CAPITAL RESOURCES

We anticipate that our existing cash and credit facilities will be sufficient to support our operating and investing needs for at least the next twelve months.

We anticipate that our existing cash and cash equivalents and credit facilities will be sufficient to support our operating and investing needs for at least the next twelve months.

Our future cash requirements could be affected by acquisitions that we may complete, repurchases of our common stock, or the payment of dividends in the future.

In addition, our ability to access capital and maintain liquidity may be impacted by the volatile market conditions caused by the COVID-19 pandemic.

Historically, we have financed our growth and liquidity needs through cash flow generation and a combination of debt financings and issuances of common stock.

In the future, there are no assurances that we will continue to generate cash flow from operations or that additional financing alternatives will be available to us, if required, or if available, will be obtained on terms favorable to us.

During the year ended December 31, 2019, net cash provided by operating activities was $213.4 million, resulting primarily from consolidated net income adjusted for non-cash items of $287.9 million, offset by a net decrease in operating assets and liabilities, net of acquisitions and divestitures, of $74.5 million.

The decrease in

operating assets and liabilities, net of acquisitions and divestitures, for the year ended December 31, 2019 was primarily caused by an increase in inventory build for 2020 orders.

During the year ended December 31, 2018, net cash provided by operating activities was $239.7 million, resulting primarily from consolidated net income adjusted for non-cash items of $281.9 million, offset by a net decrease in operating assets and liabilities, net of acquisitions and divestitures, of $42.2 million.

Cash, cash equivalents and short-term investments at December 31, 2020 and 2019 totaled $731.8 million and $684.9 million, respectively, of which $514.9 million and $301.1 million, respectively, related to cash, cash equivalents and short-term investments held outside of the U.S.

in our foreign subsidiaries, most significantly in the Netherlands, Switzerland and Hong Kong.

The following table presents our cash flows from operating activities, investing activities and financing activities for the periods presented (in millions):

Year Ended December 31,

Net cash provided by operating activities

Net cash used in investing activities

Net cash (used in) provided by financing activities

Effect of exchange rates on cash and cash equivalents

Total increase (decrease) in cash and cash equivalents

Operating Activities

During the year ended December 31, 2020, net cash provided by operating activities resulted primarily from consolidated net income adjusted for non-cash items of $262.6 million, in addition to a net increase in operating assets and liabilities, net of acquisitions and divestitures, of $69.6 million.

The increase in operating assets and liabilities, net of acquisitions and divestitures, for the year ended December 31, 2020 was primarily caused by a decrease in accounts receivable due to increased cash collections, increased customer advances related to COVID-19 order increases late in 2020 offset by a strategic inventory build for 2021 orders and supply chain management.

During the year ended December 31, 2019, net cash provided by operating activities resulted primarily from consolidated net income adjusted for non-cash items of $287.9 million, offset by a net decrease in operating assets and liabilities, net of acquisitions and divestitures, of $74.5 million.

The decrease in operating assets and liabilities, net of acquisitions and divestitures, for the year ended December 31, 2019 was primarily caused by an increase in inventory build for 2020 orders.

During the year ended December 31, 2018, net cash provided by operating activities resulted primarily from consolidated net income adjusted for non-cash items of $281.9 million, offset by a net decrease in operating assets and liabilities, net of acquisitions and divestitures, of $42.2 million.

The decrease in operating assets and liabilities, net of acquisitions and divestitures, for the year ended December 31, 2018 was primarily caused by an increase in accounts receivable caused by proportionately higher sales late in the fourth quarter of 2018 and inventory build for 2019 orders, which were offset in part by cash received from customer advances.

During the year ended December 31, 2019, net cash used in investing activities was $158.4 million, compared to net cash used in investing activities of $123.4 million during the year ended December 31, 2018.

The increase in cash used in investing activities during the year ended December 31, 2019 was primarily attributable to net cash paid for acquisitions of $90.0 million, net capital expenditures of $62.0 million and the purchase of short-term investments of $6.4 million.

During the year ended December 31, 2018, net cash used in investing activities was $123.4 million, compared to net cash used in investing activities of $30.2 million during the year ended December 31, 2017.

The increase in cash used in investing activities during the year ended December 31, 2018 was primarily attributable to net cash paid for acquisitions of $191.6 million and net capital expenditures of $48.8 million.

Investing Activities

During the year ended December 31, 2020, the increase in net cash used in investing activities during the year ended December 31, 2020 was primarily attributable to net capital expenditures of $97.2 million, net cash paid for acquisitions of $59.2 million and purchases of short-term investments, net of maturities of $43.9 million.

During the year ended December 31, 2019, the increase in net cash used in investing activities was primarily attributable to net cash paid for acquisitions of $90.0 million, net capital expenditures of $62.0 million and the purchase of short-term investments of $6.4 million.

During the year ended December 31, 2018, the increase in net cash used in investing activities was primarily attributable to net cash paid for acquisitions of $191.6 million and net capital expenditures of $48.8 million.

These activities were offset, in part, by net cash proceeds of short-term investments of $117.0 million.

We expect capital expenditures in 2021 to be approximately $100.0 million.

During the year ended December 31, 2019, net cash provided by financing activities was $300.0 million, compared to net cash used in financing activities of $112.4 million during the year ended December 31, 2018.

Cash provided by financing activities during the year ended December 31, 2019 was primarily caused by $597.9 million of new debt borrowings, described below, offset in part by $361.9 million of repayments under revolving lines of credit.

Financing Activities

During the year ended December 31, 2020, the net cash used in financing activities was primarily caused by $123.2 million used for the purchase of common stock under our repurchase program, $24.6 million used for the payment of dividends, $7.6 million in net payments of borrowings under the 2019 Revolving Credit Agreement and $7.5 million payment of contingent consideration.

During the year ended December 31, 2019, the increase in net cash provided by financing activities was primarily caused by $597.9 million of new debt borrowings, described below, offset in part by $361.9 million of repayments under revolving lines of credit.

Other cash uses were $142.3 million used for the repurchase of common shares, $25.0 million for the payment of dividends and $15.0 million repayment on the 2012 Note Purchase Agreement.

Other cash sources borrowings of $250.6 million under the revolving lines of credit and $10.9 million of proceeds from the issuance of common stock in connection with stock option exercises.

During the year ended December 31, 2018, the decrease in net cash used in financing activities was primarily caused by $218.1 million of repayments under revolving lines of credit and $25.1 million used for the payment of dividends.

These cash uses were partially offset by borrowings of $129.4 million under the revolving lines of credit and $9.4 million of proceeds from the issuance of common stock in connection with stock option exercises.

Share Repurchase Program

In May 2019, our Board of Directors approved a share repurchase program which authorizes the purchase of our common stock in the amount of up to $300.0 million from time to time, in amounts, at prices, and at such times as management deems appropriate, subject to market conditions, legal requirements and other considerations.

We repurchased a total of 2,711,952 shares at an aggregate cost of $123.2 million for the year ended December 31, 2020.

We repurchased a total of 3,323,104 shares at an aggregate cost of $142.3 million for the year ended December 31, 2019.

The remaining authorization as of February 25, 2021 is $5.3 million and this Repurchase Program expires on May 13, 2021.

We intend to fund any future purchases from cash on hand, future cash flows from operations and available borrowings under the revolving credit facility.

At December 31, 2020 and in accordance with the 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”), we recorded state and foreign withholding taxes, as well as subsequent foreign currency translations on these withholding taxes as they are an obligation of the parent company, on the cash and liquid assets portion of the unremitted earnings and profits (E&P) of foreign subsidiaries expected to be repatriated from our foreign subsidiaries to the United States.

We continue to be indefinitely reinvested in the amount of $436 million of non-cash E&P that is subject to the 2017 Tax Act deemed repatriation.

If this E&P is ultimately distributed to the United States in the form of dividends or otherwise, we would likely be subject to additional withholding tax.

We will continue to evaluate our assertions on the cumulative historical outside basis differences in our foreign subsidiaries as of December 31, 2020.

The amount of unrecognized deferred withholding taxes on the undistributed E&P was $63 million at December 31, 2020.

As of December 31, 2020, we had approximately $65.2 million of net operating loss carryforwards available to reduce state taxable income that are expected to expire at various times beginning in 2021;

approximately $108.4 million of net operating losses available to reduce German federal income and trade taxes that are carried forward indefinitely and $18.5 million of other foreign net operating losses that are expected to expire at various times beginning in 2021.

We also had U.S.

state research and development tax credit carryforward of $7.1 million.

Utilization of these credits and state net operating losses may be subject to annual limitations due to the ownership percentage change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended (“Code”) and similar state provisions.

In the event of a deemed change in control under Code Section 382, an annual limitation on the utilization of net operating losses and credits may result in the expiration of all or a portion of the net operating loss and credit carryforwards.

Uncertain tax contingencies are positions taken or expected to be taken on an income tax return that may result in additional payments to tax authorities.

If a tax authority agrees with the tax position taken or expected to be taken or the applicable statute of limitations expires, then additional payments will not be necessary.

Credit Facilities

On December 11, 2019, we entered into (1) a new revolving credit agreement to establish a new revolving credit facility in the aggregate principal amount of $600 million;

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The cross-currency swaps hedge our net investment in our Euro denominated net assets.

As a result of entering into these interest rate and cross currency swap agreements, we reduced our interest expense by $0.6 million during the year ended December 31, 2019.

We anticipate these swap agreements will lower net interest expense in future years.

As of December 31, 2020, we have entered into several cross-currency and interest rate swap agreements with a notional value of $150 million of U.S.

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Dollar to Euro to hedge the variability in the movement of foreign currency exchange rates on portions of our Euro and Swiss Franc denominated net asset investments.

As a result of entering into these agreements, we lowered our net interest expense by $0.6 million during 2019.

We anticipate these swap agreements will lower net interest expense by approximately $8.8 million in 2020, $8.8 million in 2021 and $4.8 million in 2022.

During the year ended December 31, 2018, net cash used in financing activities was $112.4 million, compared to net cash used in financing activities of $159.0 million during the year ended December 31, 2017.

Cash used in financing activities during the year ended December 31, 2018 was primarily caused by $218.1 million of repayments under revolving lines of credit and $25.1 million used for the payment of dividends.

In May 2019, our Board of Directors approved the Repurchase Program under which repurchases of common stock in the amount of up to $300.0 million were authorized to occur from time to time, in amounts, at prices, and at such times as we deem appropriate, subject to market conditions, legal requirements and other considerations.

In 2019, we repurchased 3,323,104 shares of common stock with an aggregate cost of approximately $142.3 million under the 2019 Repurchase Program.

The remaining authorization as of March 20, 2020 is $157.7 million.

We intend to fund any additional repurchases from cash on hand, future cash flows from operations and available borrowings under our revolving credit facility.

The repurchased shares are reflected within Treasury stock in the accompanying consolidated balance sheet at December 31, 2019.

Cash, cash equivalents and short-term investments at December 31, 2019 and 2018 totaled $684.9 million and $322.4 million, respectively, of which $301.1 million and $280.9 million, respectively, related to cash, cash equivalents and short-term investments held outside of the U.S.

in our foreign subsidiaries, most significantly in the Netherlands and Switzerland.

At December 31, 2019 and in accordance with the 2017 Tax Act, we recorded state and foreign withholding taxes, as well as subsequent foreign currency translations on these withholding taxes as they are an obligation of the parent company, on the cash and liquid assets portion of the unremitted earnings and profits (E&P) of foreign subsidiaries expected to be repatriated from our foreign subsidiaries to the United States.

We continue to be indefinitely reinvested in the amount of $477 million of non-cash E&P that is subject to the 2017 Tax Act deemed repatriation.

If this E&P is ultimately distributed to the United States in the form of dividends or otherwise we would likely be subject to additional withholding tax.

We will continue to evaluate our assertions on the cumulative historical outside basis differences in our foreign subsidiaries as of December 31, 2019.

The amount of unrecognized deferred withholding taxes on the undistributed E&P was $58 million at December 31, 2019.

As of December 31, 2019, we had approximately $38.8 million of net operating loss carryforwards available to reduce state taxable income that are expected to expire at various times beginning in 2020;

approximately $82.7 million of net operating losses available to reduce German federal income and trade taxes that are carried forward indefinitely and $13.2 million of other foreign net operating losses that are expected to expire at various times beginning in 2020.

We also had U.S.

state research and development tax credits of $7.7 million.

Utilization of these credits and state net operating losses may be subject to annual limitations due to the ownership percentage change limitations provided by the Internal Revenue Code Section 382 and similar state provisions.

In the event of a deemed change in control under Internal Revenue Code Section 382, an annual limitation on the utilization of net operating losses and credits may result in the expiration of all or a portion of the net operating loss and credit carryforwards.

Uncertain tax contingencies are positions taken or expected to be taken on an income tax return that may result in additional payments to tax authorities.

If a tax authority agrees with the tax position taken or expected to be taken or the applicable statute of limitations expires, then additional payments will not be necessary.

At December 31, 2019 and 2018 we had the following debt outstanding (dollars in millions):

US Dollar revolving loan under the 2015 Credit Agreement

As a result of entering into these agreements, we lowered our net interest expense by $7.2 million and $0.6 million during the year ended December 31, 2020 and 2019, respectively.

We anticipate these swap agreements will lower net interest expense by approximately $8.8 million in 2021 and $4.8 million in 2022.

We had the following debt outstanding (in millions):

US Dollar notes under the 2012 Note Purchase Agreement

CHF Dollar notes under the 2019 Note Purchase Agreement

CHF notes (in dollars) under the 2019 Note Purchase Agreement

US Dollar notes under the 2019 Term Loan

Unamortized debt issuance costs

Other revolving loans

Capital lease obligations and other loans

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Total long-term debt, less current portion

There was no amount outstanding under the 2019 Credit Agreement as of December 31, 2019.

The following is a summary of the maximum commitments and the net amounts available to us under the 2019 Credit Agreement and other lines of credit with various financial institutions located primarily in Germany and Switzerland that are unsecured and typically due upon demand with interest payable monthly, at December 31, 2019 (dollars in millions):

There was no amount outstanding under the 2019 Credit Agreement as of December 31, 2020 or 2019.

As of December 31, 2020, we had no off-balance sheet arrangements and we were in compliance with the financial covenants of these debt arrangements.

The following is a summary of the maximum commitments and the net amounts available to us under the 2019 Credit Agreement and other banking working capital lines and guarantees of credit with various financial

institutions located primarily in Germany and Switzerland that are unsecured and typically due upon demand at December 31, 2020 (dollars in millions):

Total Committed

and Uncommitted

Interest Rate

Amounts Available

2019 Credit Agreement

Other lines of credit

Total revolving loans

As of December 31, 2019, we were in compliance with the covenants, as defined by the 2012 Note Purchase Agreement, 2019 Credit Agreement, 2019 Note Purchase Agreement and 2019 Term Loan.

The following table summarizes maturities for our significant financial obligations as of December 31, 2019 (dollars in millions):

Bank guarantees and working capital line

Total revolving lines of credit

As of December 31, 2020, we were in compliance with the covenants of all debt agreements.

Other Liquidity Matters

The following table summarizes maturities for our significant financial obligations as of December 31, 2020 (in millions):

Contractual Obligations

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Finance lease obligations

Operating lease liabiltiies

Redeemable noncontrolling interest

Operating lease liabilities

2017 Tax Act impact

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Uncertain tax contingencies

(1) Interest payable on long-term debt is net of the impact of our cross-currency and interest rate swap agreements.

(2) Unconditional purchase commitments include agreements to purchase goods, services, or fixed assets that are enforceable and legally binding and that specify all significant terms, including:

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Purchase commitments exclude agreements that are cancellable at any time without penalty.

(2) Acquisition-related contingent considerations represents the estimated fair value of future payments to the former shareholders of applicable acquired companies based on achieving annual revenue and gross margin targets in certain years as specified in the purchase and sale agreements.

(3) Acquisition-related contingent consideration represents the estimated fair value of future payments to the former shareholders of applicable acquired companies based on achieving annual revenue and gross margin targets in certain years as specified in the purchase and sale agreements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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Revenue recognition

2019 & 2018 Policy under ASC 606:

We recognize revenue in accordance with Accounting Standards Codification 606, Revenue from Contracts with Customers (ASC 606) .

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Contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.

2017 Policy under ASC 605:

We recognize revenue from system sales when persuasive evidence of an arrangement exists, the price is fixed or determinable, title and risk of loss has been transferred to the customer, and collectability of the resulting receivable is reasonably assured.

Title and risk of loss generally transfers upon shipment, or for certain systems, based upon customer acceptance for a system that has been delivered to the customer and installed at a customer

For systems that include customer-specific acceptance criteria, we are required to assess when we can demonstrate the acceptance criteria has been met, which generally is upon successful factory acceptance testing or customer acceptance and evidence of installation.

When products are sold through an independent distributor or a strategic distribution partner who assumes responsibility for installation, we recognize the system sale when the product has been shipped and title and risk of loss have been transferred to the distributor.

Our distributors do not have price protection rights or rights of return;

however, our products are typically warranted to be free from defect for a period of one year.

Revenue is deferred until cash is received when collectability is not reasonably assured or when the price is not fixed or determinable.

For transactions that include multiple elements, arrangement consideration is allocated to each element using the fair value hierarchy as required by ASU No.

We limit the amount of revenue recognized for delivered elements to the amount that is not contingent on the future delivery of products or services, future performance obligations, or subject to customer-specific return or refund privileges.

We determine the fair value of products and services based upon vendor specific objective evidence (VSOE).

We determine VSOE based on normal selling pricing and discounting practices for the specific product or service when sold on a stand-alone basis.

In determining VSOE, our policy requires a substantial majority of selling prices for a product or service to be within a reasonably narrow range.

We also consider the class of customer, method of distribution and the geographies into which products and services are being sold when determining VSOE.

If VSOE cannot be established, we attempt to establish the selling price based on third-party evidence (TPE).

VSOE cannot be established in instances where a product or service has not been sold separately, stand-alone sales are too infrequent or product pricing is not within a sufficiently narrow range.

TPE is determined based on competitor prices for similar deliverables when sold separately.

When we cannot determine VSOE or TPE, we use estimated selling price (ESP) in our allocation of arrangement consideration.

The objective of ESP is to determine the price at which we would typically transact a stand-alone sale of the product or service.

ESP is determined by considering a number of factors including our pricing policies, internal costs and gross profit objectives, method of distribution, market research and information, recent technological trends, competitive landscape and geographies.

We analyze the selling prices used in our allocation of arrangement consideration, at a minimum, on an annual basis.

Selling prices will be analyzed more frequently if a significant change in our business occurs or other factors necessitate more frequent analysis, or if we experience significant variances in our selling prices.

Revenue from accessories and consumable parts is generally recognized upon shipping terms.

Service revenue is recognized as the services are performed or ratably over the contractual obligation and includes maintenance contracts, extended warranty, training, application support and on-demand services.

We also have contracts for which we apply the percentage-of-completion model and completed contract model of revenue recognition.

Application of the percentage-of-completion method requires us to make reasonable estimates of the extent of progress toward completion of the contract and the total costs we will incur under the contract and losses are recorded immediately when we estimate that contracts will ultimately result in a loss.

Changes in the estimates could affect the timing of revenue recognition.

Other revenues are primarily comprised of development arrangements recognized on a cost-plus-fixed-fee basis and licensing arrangements recognized ratably over the term of the related contracts.

Income taxes.

The determination of income tax expense requires us to make certain estimates and judgments concerning the annual effective tax rate, the calculation of deferred tax assets and liabilities, the forecasted profitability of our subsidiaries in certain geographic jurisdictions, as well as the deductions, carryforwards and credits that are available to reduce taxable income.

Deferred tax assets and liabilities arise from differences in the timing of the recognition of revenue and expenses for financial statement and tax purposes.

Deferred tax assets and liabilities are measured using the tax rates in effect for the year in which these temporary differences are

expected to be settled.

We estimate the degree to which tax assets and loss carryforwards will result in a benefit based on expected profitability by tax jurisdiction, and we provide a valuation allowance for tax assets and loss carryforwards that we believe will more likely than not go unused.

Deferred tax assets and liabilities are measured using the tax rates in effect for the year in which these temporary differences are expected to be settled.

carryforwards that we believe will more likely than not go unused.

If it becomes more likely than not that a tax asset or loss carryforward will be used for which a valuation allowance has been provided, we reverse the related valuation allowance.

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The expiration of statutes of limitations affecting estimates made for uncertain tax positions can cause higher earnings.

On December 22, 2017 (Enactment Date), the President of the United States signed tax reform legislation (2017 Tax Act), which enacted a wide range of changes to the U.S.

On December 22, 2017 (Enactment Date), former President Trump signed the 2017 Tax Act, which enacted a wide range of changes to the U.S.

corporate income tax system, many of which differ significantly from the provisions of the previous U.S.

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We test goodwill for impairment at the reporting unit level, which is the operating segment or one level below an operating segment.

GAAP, we have the option of performing a qualitative assessment to determine whether further impairment testing is necessary before performing a two-step quantitative assessment.

The qualitative assessment requires significant judgments about macro-economic conditions including the entity’s operating environment;

its industry and other market considerations;

entity-specific events related to financial performance or loss of key personnel;

and other events that could impact the reporting unit.

If, as a result of our qualitative assessment, it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test will be required.

Otherwise, no further testing is required.

If a quantitative impairment test is performed, the first step involves comparing the fair values of the applicable reporting units with their aggregate carrying values, including goodwill.

We generally determine the fair value of our reporting units using a weighting of both the market approach and the income approach methodologies.

The income approach valuation methodology includes discounted cash flow estimates.

Estimating the fair value of the reporting units requires significant judgment about the future cash flows.

If the carrying amount of a reporting unit exceeds the fair value of the reporting unit, we perform the second step of the goodwill impairment test to measure the amount of the impairment.

In the second step of the goodwill impairment test, we compare the implied fair value of the reporting unit’s goodwill with the carrying value of that goodwill.

At December 31, 2019, we performed our annual goodwill and indefinite-lived intangible impairment evaluation using a qualitative and quantitative impairment test and concluded the fair values of each of our reporting units were significantly greater than their carrying amounts, and therefore, no additional impairment was required.

We have the option of performing a qualitative assessment to determine whether further impairment testing is necessary before performing the quantitative assessment.

If as a result of the qualitative assessment, it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, a quantitative impairment test will be required.

Otherwise, no further testing will be required.

If a quantitative impairment test is performed, we compare the fair values of the applicable reporting units with their aggregate carrying values, including goodwill.

We determine fair value of reporting units using a weighting of both the market and the income methodologies.

Estimating the fair value of the reporting units requires significant judgment by management.

If the carrying amount of a reporting unit exceeds the fair value of the reporting unit, an impairment charge is recognized for the amount by which the carrying value amount exceeds the reporting unit’s fair value up to the total amount of goodwill allocated to the reporting unit.

In January 2017, the FASB issued ASU No.

2017-04, Intangibles-Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment.

The new standard simplifies the subsequent measurement of goodwill by eliminating the second step of the goodwill impairment test.

The adoption of this ASU on January 1, 2020 did not have a material impact on our consolidated financial statements.

We also review definite-lived intangible assets and other long-lived assets when indications of potential impairment exist.

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Accordingly, at the date of each acquisition, we measure the fair value of all identifiable assets acquired (including intangible assets), liabilities assumed and any remaining noncontrolling interests and allocates the amounts paid to all items measured.

The fair value of identifiable intangible assets acquired are based on valuations that use information and assumptions determined by management and which consider management’s best estimates of inputs and assumptions that a market participant would use.

The fair value of identifiable intangible assets acquired is based on valuations that use information and assumptions determined by management and which consider management’s best estimates of inputs and assumptions that a market participant would use.

RECENT ACCOUNTING PRONOUNCEMENTS

Information regarding recent accounting standard changes and developments is incorporated by reference from Part II, Item 8, Financial Statements and Supplementary Data, of this document and should be considered an integral part of this Item 7.

See Note 23 in the Notes to the Consolidated Financial Statements for recently adopted and issued accounting standards.

Information regarding recently issued accounting pronouncements may be found in Note 3 to our consolidated financial statements included in this Annual Report on Form 10-K.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis